Markets Shoulder Loads of Worry

This fall is certainly shaping up to be interesting, if nothing else. As weeks
roll on, the markets have been reacting to an increasing number of factors,
and less on fundamentals.

There's the usual stuff; election season nearing, news of Obamacare going
to the Supreme Court, the troubles in Europe, et cetera. There are also several
issues that are less obvious to the public. Case in point: some possible coming
changes in the hedge fund landscape.

Sadly, 2011 has been a bad year for hedge funds. Many funds run by John Paulson
(who made his fortune in the real estate crash), are down 30% or more. Such
poor returns have led many to expect there will be sizeable redemptions from
his funds toward the end of the year.

This means that Paulson will have to start liquidating positions, and many
traders have anticipated his poor performance. To turn his losses into their
gains, many have been rumored to be trading ahead of him, manipulating the
market. This will only serve to make Paulson's returns more painful.

Of course, in talking about factors impacting global markets this fall, Greece
is still the elephant in the room.

It's unfortunate, but Europe is quickly becoming a battle of egos. Recently
Obama has tried lecturing on Europe's troubles, suggesting particular policy
changes. His remarks have been criticized by Germans without reserve; the words
'overbearing,' 'arrogant,' 'absurd,' 'pitiful,' and 'sad' are among those that
have been thrown around in describing the President's remarks.

US Treasury Secretary Timmy Geithner has also been met with hostility. Having
offered his own recommendations to problems facing the Eurozone - obviously
solutions that would be consistent with the philosophy of the Obama administration
- have been called "stupid" by a Wolfgang Schauble.

But what does he know? He's only the German finance minister. Apparently Europeans
don't feel that Obama and Geithner are qualified to lecture; not after pushing
the US into a sizeable economic contraction, at the same time overseeing an
explosion in US government debt that has surged past 100% of GDP. Luckily for
US foreign relations, neither Geithner nor Obama refuse to let the facts get
in the way of good talking points.

As a brief side note: Ireland is now rumored to be preparing to abandon the
Euro as a currency, replacing it instead with its own sovereign currency. These
rumors have been denied once by the Irish government, but the rumor mill continues
to turn. If we see two more denials, we can safely assume the rumors are correct.

While the Germans have been more outspoken than usual in the recent weeks
(responding mostly to American idiocy), the real nation of focus is Greece.
We've written in previous articles that there may be more dominoes that fall
after a Greek default, but there's even more to this story.

Effectively, the Greek default is the single most significant referendum on
socialism in a generation. Greece may officially be a Parliamentary Republic,
but in practice it looks much more like socialism. To be sure, it's a prime
example of a country that has promised far more than it can deliver to its
citizens, and is getting ready to pay the price as a result. It should serve
as a lesson to America and other nations that have started down the same path
in recent decades, and desperately need to change course sooner rather than
later.

What the Greeks are quickly learning - as did the Mexicans, Russians, and
Argentineans learned before them, which most Americans have long forgotten
- is that government promises mean nothing. Put simply, they're far too easy
to walk away from (for the government that is; they can be very costly to taxpayers).
Additionally, promises mean nothing to those politicians who make them; they
won't be around to pay the bill anyway.

Sadly, the lesson to be learned over the next several months by the citizens
of Greece, other nations of the European Union, as well as investors and banks
who own Greek debt, is one that has been learned before. One need only study
history to be well warned to beware Greeks bearing gifts.

Dock David Treece is a partner with Treece Investment Advisory Corp (www.TreeceInvestments.com)
and is licensed with FINRA through Treece Financial Services Corp. He provides
expert content to numerous media outlets. The above information is the express
opinion of Dock David Treece and should not be construed as investment advice
or used without outside verification.